INTRODUCTION This office example uses features such as Free Rent. OFFICE BUILDING YEARLY CANADA EXAMPLE For simplicity there are only two tenants used in the example. Tenant A. 5,000 Sq. Ft Tenant B. 3,400 Sq. Ft The Investit Template used is Invest Office Yearly This practice example consists of two Sections; 1. The input information for the project 2. The instructions for entering the project data PROJECT INFO. Folder Property Name: Capital Plaza Description: Office Building Example Starting Date: Year 1 Jan Building Area 9,500 Sq Ft Total Rentable Area: 8,400 Sq. Ft Total Usable Area: 7,119 Sq Ft Land Area: 105,000 Sq Ft Frontage: 300 Ft Analysis Period: 10 Years Purchase Price: $2,700,000 Acquisition Costs: $30,000 INVESTOR Folder Marginal Tax Rate: 37.00% Discount Rate: Before Tax 13.00% Percentage of Capital Gain Rate: 50.00% Short Term Rates Before Tax for calculating the Modified Internal Rate of Return (MIRR) Financing Rate: 8.000% Reinvestment Rate: 2.500%
INVESTMENT Folder Description: Land Amount: $900,000 Year 1 Jan CCA Class: Land (No Deprec.) Description: Building Amount: $1,830,000 Year 1 Jan CCA Class: Building EXPENSES Folder Operating expenses paid for by the investor such as taxes, insurance, maintenance, property management etc Property Taxes $35,000 compounding at 4.00% per Yr for the next 2 years then increasing at 3.00% per year compounding for the remaining term Insurance $15,000 compounding at 4.00% per year Maintenance $600 per month compounding at 3.00% per year Utilities $450 per month compounding at 3.00% per year Property Management 5.00% of Effective Gross Income per year GENERAL REVENUE Folder Tenant A: 5,000 Sq. Ft Tenant A Base Rent $25.00 per Sq. Ft per Yr paid monthly. One term of one year and two terms of five years. Increase for the second term based on 3.00% compounding per year for five years. Increase for the third term based on 4.00% compounding per year for five years. Free Rent 25.00% in Year 1 Tenant A Recov. Expenses $5.00 per Sq. Ft per Year compounding at 3.00% per year Tenant B: 3,400 Sq. Ft Tenant B Base Rent $27.00 per Sq. Ft per Yr paid monthly. One term of two years, one term of five years and one term of four years. Increase for the second term based on 3.00% compounding per year for five years. Increase for the third term based on 4.00% compounding per year for four years. Tenant B Recov. Expenses $5.00 per Sq. Ft per Year compounding at 3.00% per year
Parking 60 Spaces at $45.00 per Space per Month for one year then compounding at 3.00% per year for two years. Then compounding at 4.00% per year for three years. Then compounding at 5.00% per year for five years. VACANCY Folder Detailed Entries Tenant A Base Rent 3.00% of Revenue Tenant A Recov. Expenses 3.00% of Revenue Tenant B Base Rent 3.00% of Revenue Tenant B Recov. Expenses 3.00% of Revenue FINANCING Folder 1. Mortgage (Borrowing) Type: Standard Mortgage Year 1 January 1, $2,300,000 Time Period: 10 years Amortization: 25 years Interest Rate: 7.00% SALE Folder Real Estate Commissions 5% of Sale Price Selling Expenses Selling Expenses 2% of Sale Price Legal Fees: $6,000 Sale Price Base on a Cap Rate of 7.00% using Based on the Income for the year following the Sale i.e., based on the Income & Expenses for year 11.
INSTRUCTIONS FOR ENTERING THE PROJECT INTO INVESTOR EXPRESS Getting started The first step is to open the Investor Pro Template Invest Office Yearly as follows: 1. Open Investor Pro. 2. Select the New Project Folder then select the Investit Template folder 3. Select and open the Investit template Invest Office Yearly The analysis period dialog will open at this point. 4. Enter 10 years and click OK Entering the project data and information PROJECT INFO Folder 1. Enter the Property Name: Capital Plaza 2. Enter Description: Office Building Example 3. Enter Purchase Price: $2,700,000 4. Enter Acquisition Costs: a) Select type Amount from the scrolling menu b) Enter $30,000 into the entry field 5. Enter Building Area: 9,500 Sq. Ft 6. Enter Rentable Area: 8,400 Sq. Ft 7. Enter Usable Area: 7,119 8. Enter Land Area: 105,000 Sq. Ft 9. Enter Frontage: 300 Sq. Ft
The Project Info screen should look like this; Investor Folder 1. Enter the Investor s Marginal Tax Rate: 37.00% 2. Enter the Discount Rate Before Tax: 13.00% Notes: The Discount Rate is used to calculate the Net Present Value and Net Effective Rent The program automatically calculates the Discount Rate After Tax 3. Enter Short Term Rates Before Tax Financing Rate: 8.00% Reinvestment Rate: 2.500%
INVESTMENT Folder The Investment Folder should appear like this; First Row 1. Enter the Amount: $900,000 Second Row 1. Select row 2 Building 2. Enter the Amount: $1,830,000 Third Row 1. Select row 3 Furniture & Equipment 2. Click on the button
Your entries for the Investment should look like this; EXPENSES Folder Operating expenses paid for by the investor such as taxes, insurance, maintenance, property management etc Property Taxes $35,000 compounding at 4.00% per Yr for the next 2 years then increasing at 3.00% per year compounding for the remaining term Insurance $15,000 compounding at 4.00% per year Maintenance $600 per month compounding at 3.00% per year Utilities $450 per month compounding at 3.00% per year
The Expenses folder should look like this; Steps for setting up the Expenses folder 1. Select row 3 Maintenance 2. Select Entry Choice $ per Mo 3. Select row 2 Utilities 4. Select Entry Choice $ per Mo
The Expenses folder should now look like this; Steps for setting up Property Taxes 1. Select row 1 Property Taxes 2. Click on the button In the Projection Wizard 3. Amount column: Enter $35,000 4. Project Entry Using column: Select Annual Compounding 5. Increase column: Enter the Compounding Rate of 4.00% 6. Time Period column: Select 3 Years 7. Continue Projection: Select the Cont. Proj. checkbox Row 2 8. Project Entry Using column: Select Annual Compounding 9. Increase column: Enter the Compounding Rate of 3.00% 10. Time Period column: Select To End checkbox To view your entries, click on the projections. button, which describes the entries and
Press OK to return to the Projection Wizard Your entries in the Projection Wizard should look like this; Press OK to return to the Expenses folder Steps for setting up Insurance 1. Select row 2 Insurance 2. Click on the button In the Projection Wizard 3. Amount column: Enter $15,000 4. Project Entry Using column: Select Annual Compounding 5. Increase column: Enter the Compounding Rate of 4.00% 6. Time Period column: Select the To End checkbox
To view your entries, click on the projections. button, which describes the entries and Press OK to return to the Projection Wizard Your entries in the Projection Wizard should look like this; Press OK to return to the Expenses folder Steps for setting up Maintenance 1. Select row 3 Maintenance 2. Click on the button In the Projection Wizard 3. Amount column: Enter $600 4. Project Entry Using column: Select Annual Compounding 5. Increase column: Enter the Compounding Rate of 3.00% 6. Time Period column: Select the To End checkbox
Your entries in the Projection Wizard should look like this; Press OK to return to the Expenses folder Steps for setting up Utilities 1. Select row 4 Utilities 2. Click on the button In the Projection Wizard 3. Amount column: Enter $450 4. Project Entry Using column: Select Annual Compounding 5. Increase column: Enter the Compounding Rate of 3.00% 6. Time Period column: Select the To End checkbox Your entries in the Projection Wizard should look like this;
Press OK to return to the Expenses folder Steps for setting up Property Management 1. Select row 4 Management 2. Click on the button In the Projection Wizard 3. % column: Enter 5.00% 4. Time Period column: Select the To End checkbox Your entries in the Projection Wizard should look like this; Press OK to return to the Expenses folder GENERAL REVENUE Folder Tenant A 5,000 Sq. Ft Tenant A Base Rent $25.00 per Sq. Ft per Yr paid monthly. One term of one year and two terms of five years. Increase for the second term based on 3.00% compounding per year for five years. Increase for the third term based on 4.00% compounding per year for five years. Free Rent 25.00% in Year 1 Tenant A Recov. Expenses $5.00 per Sq. Ft per Year compounding at 3.00% per year
Tenant B 3,400 Sq. Ft Tenant B Base Rent $27.00 per Sq. Ft per Yr paid monthly. One term of two years, one term of five years and one term of four years. Increase for the second term based on 3.00% compounding per year for five years. Increase for the third term based on 4.00% compounding per year for four years. Tenant B Recov. Expenses $5.00 per Sq. Ft per Year compounding at 3.00% per year Parking 60 Spaces at $45.00 per Space per Month for one year then compounding at 3.00% per year for two years. Then compounding at 4.00% per year for three years. Then compounding at 5.00% per year for five years. The General Revenue fold should appear like this; Steps for setting up the Revenue folder 1. Select row 1 Base Rent 2. Enter Description Tenant A Base Rent 3. Enter QTY: 5,000 4. Select row 3 Recoverable Expenses 5. Enter Description Tenant A Recov. Expenses 6. Enter QTY: 5,000 7. Select row 4 Parking 8. Enter QTY: 60 9. Press the button TWO times. Two new rows will appear above Parking
10. Select row 4 with no Description 11. Enter Description Tenant B Base Rent 12. Select Entry Choice $ per Sq. Ft per Yr 13. Enter Qty: 3,400 14. Select row 5 with no Description 15. Enter Description Tenant B Recov. Expenses 16. Select Entry Choice $ per Sq. Ft. per Yr 17. Enter QTY: 3,400 The Revenue folder should now look like this;
Steps for Entering Tenant A Tenant A Base Rent $25.00 per Sq. Ft per Yr paid monthly. One term of one year and two terms of five years. Increase for the second term based on 3.00% compounding per year for five years. Increase for the third term based on 4.00% compounding per year for five years. Free Rent 25.00% in Year 1 1. Select row 1: 'Base Rent' 2. Click on which displays the Projection Wizard 3. Project Entry Using.. column: select Stepped Proj. (Lease) 4. Set the No. of Terms to 3 and click OK 5. Entry column: Enter the lease rate $25.00 6. Increase column: Set row 1 to Annual Compounding Rate at 3.00%. Set row 2 to 4.00% 7. Time Period column: Leave Term 1 (the first row) at 1 year. Set term 2 (the second row) to 5 years and set Term 3 (the third row) to 5 years or check the "To End" box.
To view your entries, click on the projections. button, which describes the entries and Press OK to return to the Projection Wizard The projection should look like this; Press OK to return to the Revenue sub-folder
Entering the Free Rent. 25.00% of Base Rent in Year 1 1. Enter 25.00% in Year 1 Jan on the entry grid Entering Tenant A Recov. Expenses $5.00 per Sq. Ft per Year compounding at 3.00% per year 1. Select row with Description "Recoverable Expenses" 2. Click on which displays the Projection Wizard In the Projection Wizard 3. Entry column: Enter $5.00 4. Project Entry Using column: Select Annual Compounding 5. Increase column: Enter the compounding rate of 3.00% 6. Time Period column: Check the "To End" box. Your entries in the projection wizard should look like this: Press OK to return to the Revenue sub-folder Steps for Entering Tenant B Entering Tenant B Base Rent $27.00 per Sq. Ft per Yr paid monthly. One term of two years, one term of five years and one term of four years. Increase for the second term based on 3.00% compounding per year for five years. Increase for the third term based on 4.00% compounding per year for four years.
1. Select row 4: 'Tenant B Base Rent' 2. Click on which displays the Projection Wizard 3. Project Entry Using.. column: select Stepped Proj. (Lease) 4. Set the No. of Terms to 3 and click OK 5. Entry column: Enter the lease rate $27.00 6. Increase column: Set row 1 to Annual Compounding Rate at 3.00%. Set row 2 to 4.00% 7. Time Period column: Leave Term 1 (the first row) at 2 years. Set term 2 (the second row) to 5 years and set Term 3 (the third row) to 4 years or check the "To End" box.
The projection should look like this; Press OK to return to the Revenue sub-folder Entering Tenant B Recov. Expenses $5.00 per Sq. Ft per Year compounding at 3.00% per year 1. Select row with Description "Recoverable Expenses" 2. Click on which displays the Projection Wizard In the Projection Wizard 3. Entry column: Enter $5.00 4. Project Entry Using column: Select Annual Compounding 5. Increase column: Enter the compounding rate of 3.00% 6. Time Period column: Check the "To End" box.
Your entries in the projection wizard should look like this: Press OK to return to the Revenue sub-folder Entering Parking 60 Spaces at $45.00 per Space per Month for one year then compounding at 3.00% per year for two years. Then compounding at 4.00% per year for three years. Then compounding at 5.00% per year for five years. 1. Select row 1 Property Taxes 2. Click on the button In the Projection Wizard 3. Amount column: Enter $45.00 4. Project Entry Using column: Select Annual Compounding 5. Increase column: Enter the Compounding Rate of 3.00% 6. Time Period column: Select 3 Years 7. Continue Projection: Select the Cont. Proj. checkbox Row 2 11. Project Entry Using column: Select Annual Compounding 12. Increase column: Enter the Compounding Rate of 4.00% 13. Time Period column: Select 3 Years 14. Continue Projection: Select the Cont. Proj. checkbox Row 3 15. Project Entry Using column: Select Annual Compounding 16. Increase column: Enter the Compounding Rate of 5.00% 17. Time Period column: Select To End Checkbox
Your entries in the Projection Wizard should look like this; Press OK to return to the General Revenue folder VACANCY Folder Detailed Entries Tenant A Base Rent 3.00% of Revenue Tenant A Recov. Expenses 3.00% of Revenue Tenant B Base Rent 3.00% of Revenue Tenant B Recov. Expenses 3.00% of Revenue Entering the Vacancy The Default Vacancy Type is Detailed Entries. For this example that is correct. Tenant A Base Rent 1. Enter 3.00% into Year 1 Jan 2. Click on the button Tenant A Recov. Expenses 1. Enter 3.00% into Year 1 Jan 2. Click on the button
Tenant B Base Rent 1. Enter 3.00% into Year 1 Jan 2. Click on the button Tenant B Recov. Expenses 1. Enter 3.00% into Year 1 Jan 2. Click on the button The Vacancy Folder should look like this; Select the Financing tab FINANCING Folder Mortgage (Borrowing) Type: Standard Mortgage Year 1 January 1, $2,300,000 Time Period: 10 years Amortization: 25 years Interest Rate: 7.00% Setting up a mortgage 1. Click on the Financing folder tab 2. Click on the Add Mortgage button 3. Amount box: $2,300,000 4. Description box: "First Mortgage" 5. Time Period box: 10 Years 6. Amortization box: 25 Years 7. Nominal Interest Rate box: 7.00%
The mortgage dialog should look like this; 8. Press the button 9. Press the OK button to return to the Financing folder
The financing folder should now look like this; Select the Sale Folder Real Estate Commissions 5.00% of Sale Price The Real Estate Commission should appear like this; Entering the Real Estate Commission 1. Enter 5.00% in the appropriate box The Real Estate Commission should now look like this; Selling Expenses Selling Expenses 2.00% of Sale Price Legal Fees: $6,000 The Selling Expenses should appear like this;
Entering the Selling Expenses 1. Select row 1 Selling Expenses 2. Expense: $6,000 3. Select row 2: Legal Fees 4. Enter Expense: $3,000 The Selling Expenses should now look like this; This example does not contain Selling Expenses so leave the fields as they are. Sale Price Base on a Cap Rate of 7.00% using Based on the Income for the year following the Sale i.e., based on the Income & Expenses for year 11. The Sale Price Estimator should appear like this; 1. Press the button The Sale Price Wizard dialog will pop up;
For this example we are using a Cap Rate Row 1 1. In the second entry field to the right of Cap Rate: enter 7.50% Note: the field with the red box around it is the correct field on the above screenshot The Sale Price should now automatically appear in the field to the right 2. Click on the selection box next to the Sale Price Note: the correct field is circled in red on the above screenshot The Sale Price Wizard should now look like this; Press OK to return to the Sale folder
The Sale Price Estimator should look like this; SAVE YOUR PROJECT